Trade concerns continue, HSBC hurt by higher costs

Stocks are a touch on the weak side as traders are worried about global trading relations.

Europe

Over the weekend, President Trump claimed the US was winning the trade war against China. Mr Trump is showing no sign of letting up on his tough stance against Beijing, and investors remain worried.

HSBC posted second-quarter pre-tax profit of $5.96 billion, and the consensus estimate was $5.79 billion. The bank confirmed that adjusted operating expenses jumped by 7%, and this weighed on the stock. The company derives the majority of its earnings in the far east, and as part of its ‘pivot to Asia’ move, it has upped its investment in its retail and investment banking divisions in China. Up-to-date technology could be a long-term benefit for the firm, even though it is costly in the near-term. The heightened trade tensions have spooked some investors, but HSBC hold a ‘cautiously optimistic’ outlook.

IWG shares plunged today after the company announced that all acquisition talks are off. The workspace firm was a potential target as three private equity businesses were keen to take over the business. IWG confirmed that all acquisition talks are off, and this prompted traders to dump the stock.

Spire Healthcare issued a profit warning. The firm revealed that profit will be ‘materially’ lower on account of the poor performance from their NHS business. In a bid to conserve cash, the company has revealed plans to curtail capital expenditure. Keeping a robust balance sheet in uncertain times can put some investors’ nerves at ease. The share price has been in decline since September 2016, and if the negative move continues it could target 170p.

US

Stocks are slightly off-side as trade worries play on investors’ minds. The reporting season is still ongoing but it is doing so at a slower pace, and traders have fewer news stories to grab onto. Intel have been downgraded to equal weight from overweight by Barclays. The bank said the company needs to prove its next generation of chips will outperform rival ADM’s.

Tyson Foods shares are in demand after the company posted better than expected profit. Adjusted earnings per share was $1.50, topping the $1.28 forecast. The company confirmed that average prices ticked up by 1.8%, and revenue rose by 2%. Last week, the firm cut its full-year forecast, and today’s positive update helped the stock recoup some of the lost ground.

FX

GBP/USD fell to an 11 month low as traders are fearful of a ‘no-deal Brexit’. At the weekend, Liam Fox, the Secretary for International trade revealed the possibility of the UK leaving the EU without a trade deal is 60-40. Mr Fox might have been taking a tough line in a bid to gain leverage over the EU negotiators, but traders aren’t taking any chances and have been selling sterling. The pound has been losing ground against the US dollar since April and if the negative move continues it could target 1.2900.

EUR/USD is in the red due to the dismal German factory orders report. The update showed a 4% decline, while economists were only anticipating a 0.4% drop. It is worth noting that the May report saw a 2.6% rise. The June report was the weakest since early 2017, it is most likely a sign of heightened trade tensions. The single currency has been weak against the US dollar recently, and a break below the 1.1510 area could point to further losses.

Commodities

Gold is lower on the day due to the jump in the US dollar. The sell-off in sterling and the euro has driven the greenback higher, and gold has fallen in turn. The inverse relationship between gold and the US dollar remains strong. On Friday, the metal fell to a one year low, and if the bearish move continues it could bring $1,200 into play.

WTI and Brent Crude oil are higher today as traders are fearful the US will impose the so-called ‘snapback’ sanctions on Iran. The oil price has been a little on the weak side recently, due to the announcement that a number of OPEC members posted a rise in output in July. On Sunday, the US secretary of state, Mike Pompeo, confirmed the US will push back against ‘Iranian malign activity’.

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